Personal Finance

Young Women's Financial Planning: Alexa von Tobel's Advice

Most financial planning books are for people who are old, rich, or one missed payment away from bankruptcy. An Amazon search turns up gems such as Thou Shall Prosper: Ten Commandments for Making Money, which was written by a rabbi, or Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth, with the tag line “Think rich to get rich!” I’m a millennial woman with a pretty good job who refuses to stop spending $200 on a haircut. Thinking rich isn’t going to cut it. I need help.

Alexa von Tobel is here for me. The 30-year-old certified financial planner is the founder and chief executive officer of LearnVest, a personal finance website. At $399—plus a small monthly fee—her company is for people who feel priced out of hiring a financial planner, which usually costs about $5,000. And now she’s introduced an even cheaper version: Financially Fearless, von Tobel’s do-it-yourself book, comes out on Dec. 31. For $19.99, plus the embarrassment of getting caught reading it in public, von Tobel provides all the charts, graphs, and workbooks you need to get your life in order.

While LearnVest’s financial advice is universal, the examples von Tobel uses and the topics she covers—child-care costs, maternity leave—are focused on situations unique to young women. The book features section titles such as “Therapy Sesh,” Sex and the City-like wordplay (“Finding ‘The One’ ” in reference to a mutual fund), and this sentence, in the chapter about caring for the elderly: “Personally, I am obsessed with my mom, and I would do literally anything for her.” Von Tobel readily admits she based the book on her own experiences. “I was customer No. 1. I graduated from Harvard and was working on Wall Street, and I still didn’t know the answers to these very important questions.” Her friends didn’t either. “Nobody ever taught us,” she says.

“So many people tell me they know they need to save, but they don’t know where to start,” says Karen Wimbish, head of retail retirement for Wells Fargo (WFC). Young women, it turns out, feel particularly ill-equipped. “They’ve been through Sept. 11, two market crashes, and the housing crisis. They’re concerned about their future but … they’re intimidated.” In a Wells Fargo survey of affluent women, many of whom earned as much as or more than their spouses, 91 percent said knowing how to properly invest money was important, but 41 percent admitted they didn’t know how. And despite being well-off, only 58 percent said they actively saved money.

Von Tobel doesn’t only tell her clients to save; she also promises that if they read her book, they’ll achieve their life dreams. “We can make everything you want come true!” she says when I tell her my plan to follow Financially Fearless so I can quit work and buy a French château. “Want a $1 million home? Want to retire early? We can do that—it’s just a question of math.”

The most refreshing part of Financially Fearless is that it doesn’t assume you have a husband or partner to take care of you, but it does assume you have a career. Von Tobel runs through reasons women often put off financial planning, including the whopper, “When I get married someday, I won’t have to worry about money.” She writes: “This is an outrageous excuse.” The second-best thing about Financially Fearless is that the section about the costs and benefits of going to grad school references Felicity.

The book’s core philosophy transcends its girlfriendy tone: Fifty percent of your take-home pay should go for essential purchases, 20 percent should be saved, and the remaining 30 percent is free for you to use however you like. More specifically, you should spend no more than 30 percent of your take-home pay on your rent, 10 percent on groceries, and 10 percent on other essentials (utility bills, transportation), for a total of 50 percent. If you live in an expensive city such as New York or San Francisco, your rent may be higher, but von Tobel insists that you still need to hit that 50 percent mark. I live in New York, but luckily my rent is only 24 percent of my take-home pay. Without even trying, my essentials add up to 45 percent. Maybe my method of not budgeting is working?

That ignores the hard part: the future. The book asks you to write down your expectations for life at age 65, which as an unmarried 31-year-old I find hard to imagine. Where do I want to live? What do I want to do? Who do I want to be? At one point I become so confused I just write, “Diane Keaton.” Whomever I become, if I want to quit working before I’m too elderly to enjoy it, I have to start saving now.

My first job in New York was a magazine internship that paid $10 an hour and didn’t provide benefits, so I put everything on my credit card and ended up several thousand dollars in debt. Once I got a salaried position, I paid that debt off in huge, painful chunks. Within a year, it was gone; since then I’ve paid my monthly balance in full. Von Tobel says that credit card debt is the biggest money problem for young people and that it must be paid off before you can start saving. I do have a company-backed 401(k) plan and a small savings account to fund vacations and get me through minor emergencies, but I don’t have what von Tobel calls a freedom fund of six months’ to a year’s worth of income in case I fall ill or get injured. I’m in good company: A Gallup poll released earlier this year found that only 30 percent of Americans have a long-term savings plan. It’s tempting to blame the housing crisis and recession, but as a nation we’ve long been terrible budgeters. When Gallup asked how many of us were saving in 1951, only 40 percent of Americans answered that they were.

The section titled “How Much Will This Baby Cost Me?”—which cites a United States Department of Agriculture report claiming it takes $234,900 to raise a child to adulthood, not including college expenses—makes me start thinking things like, do children really need diapers? Von Tobel says if I save $200 a month and don’t have a child for five years, I’ll have a $12,000 baby fund. If I invest that properly, I could have even more. Granted, $12,000 would buy less than six months of day care in New York, which I’ll need if, like 43 percent of married mothers, I continue to work full time. But it’s better than nothing. I can afford $200 a month, but can I afford that on top of all the other money I’m supposed to be saving for my own twilight years? What if I have more than one kid? “I know it’s a lot,” von Tobel says. “But think of it this way: You can take out a loan for college, but you can’t take out a loan for retirement.”

To help make saving seem more fun, Financially Fearless offers tips on how to spend that discretionary 30 percent. “I don’t want to tell you what to buy. I just want to help you think about why you’re buying it,” von Tobel says. To do that, she relies on her “cost per happy.” This isn’t as ridiculous as it sounds. A $24 manicure may last an entire week, which works out to 14¢ an hour. But for how long do you really enjoy that extra drink at dinner or all those clothes you never wear? According to my bank statement, I spent $100 on a glorious massage last month that I don’t regret at all. But I also paid $14 for one cocktail I can barely remember.

I’ve received only one paycheck since reading Financially Fearless, but I immediately dumped 15 percent of it into my savings account, and I’ll repeat the process again next week. “Direct deposit is easier,” von Tobel says, but I’m not ready for that yet. Drinks and dinners are the simplest things for me to give up, although I still attend them so I can see my friends. Von Tobel says it takes about two months to break bad money habits—but it’ll be decades before I can reap the benefits of a sound, secure retirement plan.

When I tell her I’m a little embarrassed it’s taken me so long to get my act together, she insists I shouldn’t feel guilty. “You’re not alone,” she says. “Of all the thousands and thousands of people I’ve talked to about this, I’ve never met anyone who said, ‘No thanks, I’m good with my money.’ ”